2000 (2) TMI 814 - HC - VAT and Sales Tax

Issues Involved:
1. Reassessment for the years 1987-88 to 1990-91.
2. Applicability of section 5B of the Karnataka Sales Tax (K.S.T.) Act.
3. Ownership and transfer of property in goods involved in the execution of the contract.
4. Applicability of the Karnataka Ownership Flats (Regulation of Promotion of Construction, Sales, Management and Transfer) Act, 1972.
5. Right to forfeit advance payments under agreements.

Detailed Analysis:

1. Reassessment for the Years 1987-88 to 1990-91:
The dispute pertains to the reassessment for the year 1987-88 and assessments from 1988-89 to 1990-91. The appellate authority had set aside the assessments, considering the clarifications provided by the Commissioner on April 28, 1989, and September 15, 1993. The revising authority concluded that the agreements by the appellant with individuals for shops, godowns, garages, etc., were works contracts.

2. Applicability of Section 5B of the K.S.T. Act:
The judgment dated September 24, 1999, recorded several findings regarding the liability of tax under section 5B of the K.S.T. Act:
- If the building was constructed first and then sold, it was considered a transfer of immovable property, not attracting tax.
- Advances were taken at the time of contract execution, followed by 15 installments.
- It was not established that construction had started when the agreements were entered into.
- The ultimate purchaser had to buy the land share from the owner, not the appellant.
- Provisions of the Karnataka Ownership Flats Act, 1972, were applicable, granting prospective buyers inspection rights during construction.
- The developer was deemed the owner only if the building was not acquired by any person when ready for occupation.

Ultimately, it was held that there was a transfer of property in goods involved in the execution of the contract, and the appellant was considered a contractor for constructing the flats for the ultimate buyer.

3. Ownership and Transfer of Property in Goods:
The court discussed the ownership issue extensively, referencing judgments like Commissioner of Income-tax v. Podar Cement Pvt. Ltd. and Mysore Minerals Ltd. v. Commissioner of Income-tax. These judgments indicated that for tax purposes, registration of property was not necessary; possession and entitlement to income sufficed. However, in this case, the ultimate purchaser registered the property from the landowner, not the appellant.

4. Applicability of the Karnataka Ownership Flats Act, 1972:
The court noted that the provisions of the Ownership Flats Act, 1972, applied to residential flats but not to commercial buildings. It was observed that the agreements entered into before the construction commenced needed verification to determine the extent to which the Act applied. The court directed the assessing authority to examine whether the agreements were for residential flats or commercial property.

5. Right to Forfeit Advance Payments:
The court emphasized that a contractor cannot forfeit advance payments; only an owner can. The agreements needed verification to determine if they conferred the right to forfeit advances. If the appellant had the right to forfeit, they were considered the owner; otherwise, they were a contractor liable for tax.

Conclusion:
The judgment dated September 24, 1999, required modification. The court directed that:
1. The appellant would not be liable for tax under section 5B for buildings constructed before any agreement and sold thereafter.
2. The appellant would not be liable for tax under section 5B for agreements entered into after construction started.
3. If agreements conferred the right to forfeit advances, the appellant would be considered the owner, not liable for tax as a contractor.

The review application was allowed, and the matter was remanded to the assessing authority for examination in light of these observations.

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